September242013

The recent release of crime statistics by the national Minister of Safety and Security Nathi Mthethwa has reaffirmed #Cape_Town as the most dangerous city in the country. Most South Africans, however, still think that Johannesburg and Durban are more dangerous. This is in part because of the effective #MEDIA machine that is the Democratic […]

February052013

Our current situation is conducive to revolutionary thinking, if not yet in politics, then maybe in economics.

The BoE has spent £50 billion over the past six months to support bond prices. That could instead have financed a cash handout of £830 for every man, woman and child in Britain, or £3,300 for a typical family of four. In the United States, the $40 billion the Fed has promised to transfer monthly, with no time limit, to banks and bond funds, could instead finance a monthly cash payment of $500 per family – to be continued indefinitely until full employment is restored.

// oAnth: What sounds on a first glance quite marvelous, needs in my opinion to consider who is paying here to whom by which kind of interests and conditions. The question where these huge amounts of money are coming from seems to be not even noteworthy.

The states' fiscal sovereignty is completely questioned. It's an open revolution not in economic thinking, but in the foundations of the state's authority. In so far this discussion continues the neoliberal agenda on a less hidden manner as a clear opening to the area of neofeudalism and proves an ongoing obvious power shift.

It has IMHO nothing to do with a P2P decentralized economy.

// oAnth: I would like to correct my latest entry in so far, as I have
misunderstood the source of the money, which is to spend. If I
understand well now, it would be a more or less indirect debt cut by
spending money, created by the central bank, directly to the population, but - but as I would instantly like to add, the incentive to the exploitation circle would nevertheless in a long
run only be to tame by additional much higher top income taxes.

January202013

“

[...]

In 2009, the global eco­nomic crisis began to affect Slov­e­nia not only due to shrink­ing European exports, but also because of mis­guided policies taken dur­ing the years of eco­nomic expan­sion (most dur­ing Janez Janša’s first man­date). In 2009, the Slov­e­nian eco­nomy shrunk by 8% and the over­heated con­struc­tion sec­tor dis­in­teg­rated. The Slov­e­nian eco­nomy entered a second reces­sion in the last quarter. Pro­test­ers blame this new reces­sion not only on the auto­cratic, neo­lib­eral, cor­rupt and incom­pet­ent policies of the cur­rent gov­ern­ment, but on a recent suc­ces­sion of cor­rupt self-​serving gov­ern­ments. This is why pro­test­ers have recently deman­ded the replace­ment of the entire polit­ical elite.

The gov­ern­ment has respon­ded with arrog­ance to the raised voices of its own cit­izens. The ostens­ibly rep­res­ent­at­ive gov­ern­ment has con­sist­ently refused to enter into dia­logue with pro­test­ers and had instead dis­cred­ited and ridiculed their legit­im­ate demands. This shame­ful response has only helped the protest move­ment to grow. The gov­ern­ment has also respon­ded to the protests by clos­ing down the centre of the cap­ital city of Ljubljana, by using riot police, horses, armoured vehicles, water can­nons, anti­riot fences and heli­copters in what can only be char­ac­ter­ized as a gross over­re­ac­tion to the largely peace­ful gath­er­ings of Slov­e­nian cit­izens. The police has imprisoned large num­ber of young­sters, mis­streat­ing them, hold­ing them host­ages, black­mail­ing their parants to stop protest­ing, if they want to see their kids lib­er­ated. Prime Min­is­ter Janez Janša has described the pro­test­ers as “extrem­ist left zom­bies” and char­ac­ter­ized them as rad­ical “neo-​socialists” in an effort to bal­ance out the actual pres­ence of neo-​Nazis (pos­sibly organ­ised by the rul­ing gov­ern­ment itself in an effort to dis­credit the protests at the begin­ning of the move­ment). Again this insult­ing gov­ern­ment response has back­fired, draw­ing more and more angry cit­izens into the streets.

The protests were triggered by an appar­ently insig­ni­fic­ant and mar­ginal issue in local polit­ics. In Mari­bor, the second largest city of Slov­e­nia, the city mayor com­mit­ted a private com­pany to install cam­eras across the city, in order to con­trol the traffic and pen­al­ize the viol­a­tions of speed lim­its. The main prob­lem was that the pen­al­ties would be paid to the same private com­pany. This then added fuel to the already foun­ded accus­a­tions of cor­rup­tion in the city coun­cil and not­ably in the mayor’s office. The occa­sional protests cul­min­ated in what became known as the “Mari­bor upris­ing”, where, for the first time in the short his­tory of Slov­e­nian inde­pend­ency, the police used excess­ive viol­ence, water can­nons, heli­copters etc. The com­bin­a­tion of local issues and cyn­ical polit­ical reac­tions from the gov­ern­ing parties lead to the situ­ation in which a vast major­ity could recog­nize their own dis­sat­is­fac­tion and frus­tra­tion with the gov­ern­ing polit­ics, and more broadly with the prob­lem­atic polit­ical tra­di­tion in Slov­e­nia. The ini­ti­at­ives for protests spread across the coun­try and the major­ity of organ­ising was con­duc­ted through the social networks.

August282012

A specter is haunting the Republican National Convention—the specter of ideology. The novelist Ayn Rand (1905–1982) and the economist Friedrich von Hayek (1899–1992) are the house deities of many American libertarians, much of the Tea Party, and Paul Ryan in particular. The two thinkers were quite different, subject to much misunderstanding, and, in Hayek’s case, more often cited than read. Yet, in popularized form, their arguments together provide the intellectual touchstone for Ryan and many others on the right wing of the Republican Party, people whose enthusiasm Mitt Romney needs.

The irony of today is that these two thinkers, in their struggle against the Marxist left of the mid-twentieth century, relied on some of the same underlying assumptions as Marxism itself: that politics is a matter of one simple truth, that the state will eventually cease to matter, and that a vanguard of intellectuals is needed to bring about a utopia that can be known in advance. The paradoxical result is a Republican Party ticket that embraces outdated ideology, taking some of the worst from the twentieth century and presenting it as a plan for the twenty-first.

Romney’s choice of an ideologist as his running mate made a kind of sense. Romney the financier made hundreds of millions of dollars in an apparent single-minded pursuit of returns on investment; but as a politician he has been less noted for deep principles then for expediently changing his positions. Romney’s biography was in need of a plot and his worldview was in need of a moral. Insofar as he is a man of principle, the principle seems to be is that rich people should not pay taxes. His fidelity to this principle is beyond reproach, which raises certain moral questions. Paying taxes, after all, is one of our very few civic obligations. By refusing to release his tax returns, Romney is likely trying to keep embarrassing tax dodges out of public view; he is certainly communicating to like-minded wealthy people that he shares their commitment to doing nothing that could possibly help the United States government. The rationale that Ryan’s ideology provides for this unpatriotic behavior is that taxing rich people hinders the market. Rather than engaging in activist politics, such as bailing out General Motors or public schools, our primary responsibility as American citizens is to give way to the magic of the marketplace, and applaud any associated injustices as necessary and therefore good.

This is where Ryan comes in. Romney provides the practice, Ryan the theory. Romney has lots of money, but has never managed to present the storyline of his career as a moral triumph. Ryan, with his credibility as an ideas politician, seems to solve that problem. In the right-wing anarchism that arises from the marriage of Rand and Hayek, Romney’s wealth is proof that all is well for the rest of us, since the laws of economics are such that the unhindered capitalism represented by chop-shops such as Bain must in the end be good for everyone.

The problem with this sort of economic determinism is that it is Marxism in reverse, with the problems of the original kind. Planning by finance capitalists replaces planning by the party elite. Marx’s old dream, the “withering away” of the state, is the centerpiece of the Ryan budget: cut taxes on the rich, claim that cutting government functions and the closing of unspecified loopholes will balance budgets, and thereby make the state shrink. Just like the Marxists of another era, the Republican ticket substitutes mythical thinking about the economy for loyalty to the nation.

The attempt to add intellectual ballast to Romney’s career pulls the ticket downward into the slog of twentieth-century ideology. Hayek’s Road to Serfdom, which in its better passages is a paean to modesty in economics, is read by leading Republicans as the formula that intervention in the free market must lead to totalitarianism. This is a nice confident story, with a more than superficial resemblance to the nice confident Marxist story that a free market without intervention would bring revolution. Like Marxism, the Hayekian ideology is a theory of everything, which has an answer for everything. Like Marxism, it allows politicians who accept the theory to predict the future, using their purported total knowledge to create and to justify suffering among those who do not hold power. Ayn Rand is appealing in a more private way because she celebrates unbridled anarchic capitalism: it magnifies inequality and brings pleasure to the wealthy, who deserve it for being so wonderful, and pain to the masses, who deserve it for being so stupid. Hayek thought that we should hesitate to intervene in the market because certainty about economic matters was impossible; Rand thought that the law of the jungle was itself a rather good (and sexy) thing.

Though he now prefers discussing Hayek, Ryan seems to have been more deeply affected by Rand, whom he credits for inspiring his political career. It is likely the combination of the two—the theory of everything and the glorification of inequality—that gives him his cheery, and eerie, confidence. Hayek and Rand are comfortable intellectual company not because they explain reality, but because, like all effective ideologists, they remove the need for any actual contact with it. They were reacting to real historical experience, Hayek with National Socialism and Rand with Soviet communism. But precisely because they were reacting, they flew to extreme interpretations. Just as untethered capitalism did not bring proletarian utopia, as the Marxists thought, intervention and redistribution did not bring totalitarianism, as anti-Marxists such as Hayek claimed.

Hayek’s native Austria was vulnerable to radicalism from the right in the 1930s precisely because it followed the very policies that he recommended. It was one of the least interventionist states in Europe, which left its population hugely vulnerable to the Great Depression—and to Hitler. Austria became a prosperous democracy after World War II because its governments ignored Hayek’s advice and created a welfare state. As Americans at the time understood, making provisions for citizens in need was an effective way to defend democracy from the extreme right and left.

Rich Republicans such as Romney are of course a small minority of the party. Not much of the Republican electorate has any economic interest in voting for a ticket whose platform is to show that government does not work. As Ryan understands, they must be instructed that their troubles are not simply a pointless contrast to the gilded pleasures of the man at the top of the Republican ticket, but rather part of the same story, a historical drama in which good will triumph and evil will be vanquished. Hayek provides the rules of the game: anything the government does to interfere in the economy will just make matters worse; therefore the market, left to its own devices, must give us the best of all possible worlds. Rand supplies the discrete but titillating elitism: this distribution of pleasure and pain is good in and of itself, because (and this will not be said aloud) people like Romney are bright and people who will vote for him are not. Rand understood that her ideology can only work as sadomasochism. In her novels, the suffering of ordinary Americans (“parasites,” as they are called in Atlas Shrugged) provides the counterpoint to the extraordinary pleasures of the heroic captains of industry (which she describes in weird sexual terms). A bridge between the pain of the people and the pleasure of the elite which mollifies the former and empowers the latter is the achievement of an effective ideology.

In the Romney/Ryan presidential campaign, Americans who are vulnerable and isolated are told that they are independent and strong, so that they will vote for policies that will leave them more vulnerable and more isolated. Ryan is a good enough communicator and a smart enough man to make reverse Marxism work as a stump speech or a television interview. But as national policy it would be self-destructive tragedy. The self-destructive part is that no nation can long survive that places stories about historical necessity above the palpable needs of its citizens. The tragic part is that the argument against ideology has already been won. The defenses of freedom against Marxism, above all the defense of the individual against those who claim to enact the future, also apply to the reverse Marxism of the Republican ticket.

The great political thinkers of the twentieth century have discredited ideological systems that claim perfect knowledge of what is to come and present politicians as scientists of the future (remember, Ryan’s budget plan tells us what will happen in 2083). The way to national prosperity in the twenty-first century is surely to think non-ideologically, to recognize that politics is a choice among constraints and goods rather than a story about a single good that would triumph if only evil people would allow it to function without constraints. The market works very well for some things, the government is desperately needed for others, and stories that dismiss either one are nothing more than ideology.

April172012

I have just learned that Hans-Werner Sinn has taken on even weightier subjects than rescuing the euro area from its crisis. Back in 2007 Germany’s best-known economist wrote articles on saving not just Europeans but the whole of humanity, namely from climate change; these thoughts have now just appeared in book form in English under the title ‘The Green paradox‘, published by MIT press.

Sinn’s solution to the euro crisis, in a nutshell, was to kick out Greece, followed by other Club Med countries. The ‘euro area crisis’ would then be resolved, as it were by definition: the economic mess that would then face all the former euro area members would certainly have needed a new name. Judging by the publicity material for the new book on climate change, Prof. Sinn in no less forthright in his way of arguing when it comes to climate change. The problem is that he appears to be completely on the wrong track.

Again.

Hans-Werner Sinn on climate change: its the supply side, stupid

Western governments have failed to curb carbon emissions, we are told, because they have sought to limit the consumption of fossil fuels using all sorts of costly and distortionary measures. Instead we should

extract less of it [fossil carbon] from underground to start with. That would inevitably lead to less fossil carbon being combusted.

No-one had grasped this crucial insight

… until Hans-Werner Sinn broached the idea in a series of scholarly papers in 2007…

and that is why climate-protection policies have been such a failure. Specifically,

By neglecting the supply side of the carbon markets, the policies against global warming simply disregard half of the market for fossil fuels and ignore the fact that the fossil resource owners are the real climate makers. By inserting fossil carbon into the carbon cycle by way of supplying it to the markets, enlarging thus the stock of carbon dioxide in the atmosphere, they determine the speed of global warming and, consequently, hold the fate of humanity in their hands.

A moment’s reflection shows this to be entirely wrong. If it were the oil producers – think Saudi sheiks – that determined the level of emissions, then what is the explanation for the fall in emissions during the economic crisis? Did the oil producers coincidentally decide to turn off the taps just when the global economy plunged? In the real world, the amount of oil pumped is driven by the physical demand for it at the current market price. The physical demand is affected by things like incomes and economic growth, and the quantity and fuel efficiency of energy-consuming devices. The price is determined by the marginal cost, i.e. the cost of producing the last barrel demanded, and that in turn is set by the level of demand combined with technical supply-side factors.

But Hans-Werner Sinn has a different explanation for why the producers, who in his view are running the show, are pumping so much oil. It’s all the fault of – you guessed it – those misguided western governments and their feed-in tariffs and rules on light-bulbs, what he calls ‘green policy measures’ aimed at reducing consumption. In Sinn’s worldview, that may seem paradoxical, but it is obvious:

The resource owners regard the tightening of green policy measures with increasing concern, because they perceive them as a destruction of their future markets. Quite understandably, they try to pre-empt the expected wealth losses by extracting and selling their fossil fuels before their markets disappear. That is the Green Paradox: announced future reductions to carbon consumption may have the effect of accelerating climate change now.

Ok, here I really struggle to follow the logic here. Unlike in the previous paragraph, here it seems that Sinn sees western demand as the driver, and not supply. But it is future demand, he claims, that is key: because future demand is expected to fall, then present supply is (artificially?) ramped up.

Wow. Well, isn’t it eminently more plausible simply to assume that that oil sheiks are relatively short sighted profit-maximisers like everyone else. They don’t maximise their expected returns over the next infinite number of generations, even if some economic schools of thought think that everybody does (or should do). They just see that – to take extremes – oil in the ground means riding from one dusty tent to the next by camel, whereas oil pumped out of the ground can be converted into Bentleys, advanced weapons systems, welfare-induced quiescent populations, numerous wives, and all the other things that your average Saudi Prince thinks are necessary for the good life. They pump oil to meet these ends. Or to keep the Americans on-side. Or whatever. (And the same applies to less colourful figures in places like Norway, even if their ‘needs’ are more prosaic.) One thing that is surely NOT driving oil-pumping policy is that they are petrified of the German or anyone else’s feed-in tariff ten or twenty years hence.

But that is not all. Then it gets really strange. The obvious policy question posed by Sinn’s ‘analysis’ is

But how can you induce resource owners to leave more carbon underground?

And the answer:

a swiftly introduced Super-Kyoto system, combining all consuming countries into a seamless demand cartel using a world-wide cap-and-trade system

But this obviously raises at least two fundamental questions. First, if this is really thought to be a realistic policy proposal then wouldn’t it, on Sinnian logic, be the mother of all incentives to pump oil like there was no tomorrow? If Sinn’s green paradox is real, we would be in oil up to our knees if a super Kyoto were, ahem, in the pipeline. And “every atom of carbon we extract from the ground ends up eventually as carbon dioxide in the atmosphere”.

On the other hand, if this super Kyoto is a utopian solution then all the fiddly, specific, freedom-limiting and costly demand-reducing measures that Sinn so disapproves of have to be seen in a much more favourable light. They are, in economist-speak, second-best solutions. But they are likely to be preferable to a first-best solution that is never going to be implemented. (For the record, I agree entirely that price-based carbon-reduction mechanisms are the way to go, but an EU-carbon tax with some form of border adjustment would be much more realistic and effective (see here, pdf))

In short Hans-Werner Sinn’s whole approach appears riddled with contradictions and problematic assertions. I say “appears” only because I am basing myself on the publicity material, but an author has no right to complain that people don’t read his book if the publicity material – which was produced by his own institute’s press service and not some penny-fiction publisher – is so dubious.

The Hans-Werner Sinn paradox

Which makes me wonder. Hans-Werner Sinn continues to be hugely influential in Germany, where he has a huge media presence, and also in Europe via the European Economic Advisory Group (EEAG). Yet he rushes into debate after debate, causes a commotion, but gets a bloody nose each time.

In 2003 he asked rhetorically Ist Deutschland noch zu retten? (whether Germany can be saved: English 2007), the title of a book in which he analysed the ‘malaise of the world’s first welfare state’ – the very welfare state (in the broad sense) that performed extremely well during the crisis and which now has one of the lowest unemployment rates in Europe.

Then it was the bizarre thesis that Germany had become a “bazaar economy” and was fast becoming a basket case. The analysis underpinning the bazaar economy idea was wrong (here on the facts and here for a critique of Sinn, beide auf deutsch), and the prediction, well we have seen how that turned out. Related to all this, he tried to claim that the so-called capital exports resulting from trade surpluses were somehow a loss to the domestic economy (refuted hereauf deutsch).

Then it was kick Greece out of the euro area, one of the main justifications for which was that he pounced on the Target imbalances between the central banks of the eurosystem, making a number of claims that the the subsequent debate showed to be erroneous (see innumerable entries on vox.eu, Herdentrieb, Kantoos, several in English).

What seems to unite all these episodes is a flamboyant style, a resolutely micro-based approach, successfully convincing (German) voters and readers that they are losing hard-earned cash thanks to an array of dark forces ranging from trade unionists, to Greek pensioners to the eurosystem of central banks. Oh, and rapidly being proven wrong.

April022012

The president of Argentina’s Central Bank (BCRA),
Mercedes Marcó del Pont, stressed the importance of the recently
approved bank’s charter reform and denied that printing currency leads
to the creation of an inflationary state “since inflation is rooted in
other causes”.
Marcó del Pont: tensions with prices must be looked on the supply side and the external sector”.

“The new charter will provide the government with more
tools to deepen the development model and to give priority to investment
credit” said Marcó del Pont in a Sunday interview with two
pro-government local newspapers Página 12 and Tiempo Argentino.

The banker added that “it is totally false to say that printing more
money generates inflation, price increases are generated by other
phenomena like supply and external sector’s behaviour”.

In that sense, the BCRA president explained that “the priority right
now is the investment credit, because it is one of the issues in which
Argentina is still with insufficient coverage. We look for credits of
longer-term investment plans at reasonable rates with the return of
these investment projects.”

“We discard that financing the public sector is inflationary because
according to that statement the increase in prices are caused by an
excess of demand, something we do not see in Argentina. In our country
the means of payment are adjusted to the growth of demand and tensions
with prices must be looked on the supply side and the external sector”.

Marcó del Pont remarked that criticism of the way the state is
funding itself “have a clear ideological condiment, it is that or either
the public sector has to make adjustments or go abroad to get credits
and/or loans”. She added that the debate is very similar to that
referred to “the use of BCRA reserves to pay for sovereign debt”.

Under the new charter of the bank the primary and main task of the
BCRA will not be only to preserve the value of the currency but must
also include inflation, jobs, economic development with social fairness,
financial stability and the need to coordinate with government
policies.

“We’re recovering the sovereign capacity to formulate and implement
economic policy”, said Marcó del Pont who anticipated some pictures will
be coming down from the bank’s hall of fame “beginning with Milton
Friedman.”

The banker explained that the criteria to determine the optimum level
of reserves will be determined in coming days and will involve several
existing and new elements. Under the new BCRA charter funds above the
‘optimum level’ can be used for other purposes such as development
financing.

“The formula will include issues referred to imports, short term
foreign debt payments, the evolution of bank deposits and accumulation
of foreign currency assets”, said Marcó del Pont who forecasted that in
the first quarter the sum will be below two billion dollars but for the
whole year the sum is estimated in 9 billion or more.